Does Financial Liberalization Relax Financing Constraints on Firms?
The author uses panel data on 394 firms in 13 developing countries for the years 1988-98 to learn whether financial liberalization relaxes financing constraints on firms. He finds that liberalization affects small and large firms differently. Small...
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2014
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| Online Access: | http://documents.worldbank.org/curated/en/2000/10/692863/financial-liberalization-relax-financing-constraints-firms http://hdl.handle.net/10986/19780 |
| Summary: | The author uses panel data on 394 firms
in 13 developing countries for the years 1988-98 to learn
whether financial liberalization relaxes financing
constraints on firms. He finds that liberalization affects
small and large firms differently. Small firms are
financially constrained before liberalization begins but
become less so after liberalization. The financing
constraints on large firms, however, are low both before and
after liberalization. The initial difference between small
and large firms disappears over time. The author
hypothesizes that financial liberalization has little effect
on the financing constraints of large firms because they
have better access to preferential directed credit in the
period before liberalization. Financial liberalization also
reduces imperfections in financial markets, especially the
asymmetric information costs of firms' financial
leverage. Countries that liberalize their financial sectors
tend to see dramatic improvements in political climate as
well. Successful financial liberalization seems to require
both the political will and the ability to stop the
preferential treatment of well-connected, usually large, firms. |
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